Wednesday, January 7, 2009

Fun with Gold

Update: These ARE NOT charts of cumulative or relative return. They simply show how many ounces of gold were required to buy the S&P 500 or a home at each point in time against how much the S&P 500 or a home cost in dollars. The post doesn't say the word 'return' once and for any snap shot of cost at any point in time, rental earnings, dividends, or opportunity cost are irrelevant.

So, we all know housing and equity markets have been hit hard after many years of gains... in dollars that is. How would each market look in terms of the hardest of currencies... gold (note that October dates were used as that is the last Case-Shiller print and the long-term trend is what I was looking for).

The housing market is interesting. From 1987-1997 the housing market went nowhere in dollars, but started to see the beginning signs of the boom, in gold, beginning in 1997. From 1998-2005, we saw a bubble form in both dollars and gold, but that's where we see a huge divergence. Gold rallied hard starting in 2005, "predicting" the fall. It now takes roughly the same amount of gold to buy a home as it did back in 1997... dollars are another thing altogether.




The equity market is even more interesting (to me). Since 1994, the S&P 500 has roughly doubled in dollars. In gold, the market has gone... well nowhere.

8 comments:

Anonymous said...

You shouldn't leave the previous gold run of the 80s as it will show that gold has 25 year cycles and any comparison to the dollar is meaningless.

Jake said...

this isn't a comparison of gold to the dollar. it is the value of gold and the value of the dollar to housing and equities.

Graham said...

This is stupid analysis.

Either you have left out rental earnings(or imputed thereof for owner occupied) and dividends or

You have left out the opportunity cost of holding gold ( ie the interest rate)

Typical gold bug crap.

Jake said...

These ARE NOT charts of cumulative or relative return. They simply show how many ounces of gold were required to buy the S&P 500 or a home at each point in time. The post doesn't say the word 'return' once and for any snap shot of cost at any point in time, rental earnings, dividends, or opportunity cost are irrelevant.

Van said...

I would like to see the same graph but in terms of inflation-adjusted dollars only.

Jake said...

that i can / will do

Anonymous said...

Authers of the FT recently said that the world is in effect on a Yen (not gold) standard.

The same graphs in dollars vs. Yen would be even more amusing.

Jake said...

the yen has been surprisingly stable (relatively speaking) vs. the dollar over the past 20 years fluctuating from ~85 per dollar to ~140 per dollar. in fact, it was at levels similar to those seen now, back in the mid 1990s.

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